The operating margins of Infosys,Indias second-largest IT services exporter,are likely to decline further despite the benefit of a weakening rupee as the company will have to absorb the higher costs of wages and visas,according to reports by multiple brokerage houses. The Bangalore-headquartered IT firm,which will announce the first quarter results of FY14 on Friday,had reported a operating margin or Ebitda of 23.55% for the fourth quarter of FY13 showing a yearly decline of over 200 basis points. Kawaljeet Saluja of Kotak Institutional Equities said,Operating margins are likely to disappoint due to a combination of ramp-up of upfront margin-dilutive deals,compensation revision and visa costs. We expect 140 basis points of margin decline. Infosys,which has traditionally enjoyed superior operating margins compared with other Indian IT vendors,reported the lowest-ever operating profit margins in Q4 of FY13 and has now lagged behind TCS for the past three consecutive quarters. The over $7-billion IT major has seen its operating margin having a steep fall of almost 10 percentage points to 23% from an industry leading 33%. However,IDFC Securities pointed out that Infosys,with partial hikes including full quarter impact of onsite hikes and a two-month impact of wage hike for the sales team,should report about 40 basis points dip in margins. During the June quarter,Infosys had announced an average wage increase of 8% for employees based in India and 3% for employees in other geographies,effective July 1. The global sales team will see an average increase of 8% effective May 1. Majority of the brokerage houses are eagerly waiting to hear the new direction to be undertaken by Murthy. We expect Infosys to maintain its FY14 outlook but share more details on what changes NRN Murthy would bring to business strategy and execution, IDFC Securities said in its report.
